Central securities depositories (CSDs)

Securities settlement

Any transaction in securities must be followed by a post-trade flow of processes. These processes lead to the settlement of the trade, which means the delivery of securities to the buyer against the delivery of cash to the seller.

Settlement may occur on the day of the trade, but more often a number of days later depending on

• the type of securities
• the type of trading venue
• the type of market

Role of CSDs in securities settlement

CSDs operate the infrastructure that enables the so-called securities settlement systems. In particular, CSDs

• allow the registration and safekeeping of securities
• allow the settlement of securities in exchange for cash
• track how many securities have been issued and by whom
• track each change in the ownership of these securities

CSDR Review

Article 75 of CSDR required the Commission to review and prepare a report assessing the implementation of the Regulation and the way forward for its review by 19 September 2019. The European Parliament, in its resolution on further development of the capital markets union, also invited the Commission to review the settlement discipline regime under CSDR in view of Brexit and the Covid-19 crisis. To this end, a targeted consultation took place between 8 December 2020 and 2 February 2021. On 1 July 2021, the Commission adopted a report which concluded that in broad terms CSDR is achieving its original objectives to enhance the efficiency of settlement in the EU and the soundness of CSDs. For most areas, significant changes to CSDR were considered premature considering the recent application of requirements. Nevertheless, the report identified areas where further action may be necessary to achieve CSDR’s objectives in a more proportionate, effective and efficient manner.

On 16 March 2022, the European Commission adopted a legislative proposal proposing changes to CSDR to enhance the efficiency of the EU’s settlement markets, while safeguarding financial stability. The proposal is a key component of the 2020 capital markets union action plan. Its overall aim of is to make securities settlement in the EU safer and more efficient, thereby improving the attractiveness of the EU’s capital markets and ultimately contributing to the financing of our economy. The proposed changes will ensure more proportionate and effective rules to reduce compliance costs and regulatory burdens for CSDs, as well as facilitate their ability to offer a broader range of services cross-border, while improving their cross-border supervision.

CSD Regulation

Settlement across borders presents higher risks and costs for investors within one country. To harmonise rules in this area the EU has adopted a Regulation on CSDs (CSDR).

The main objective of the regulation is to increase the safety and efficiency of securities settlement and settlement infrastructures in the EU. It does this by introducing

• shorter settlement periods
• cash penalties and other deterrents for settlement fails
• strict organisational, conduct of business and prudential requirements for CSDs
• passport system allowing authorised CSDs to provide their services across the EU
• increased prudential and supervisory requirements for CSDs and other institutions providing banking services that support securities settlement

Relevant legislation

Related links

ESMA list of databases and registers

Frequently asked questions on the CSDR - 23 July 2014

Frequently asked questions on CSDR implementation, scope of requirements and third country CSDs - 3 October 2014